Regal Beloit Corporation Investor Relations Presentation August 11, - - PowerPoint PPT Presentation

Regal Beloit Corporation Investor Relations Presentation

August 11, 2014

Mark J. Gliebe

President Chief Executive Officer

Chuck Hinrichs

Vice President Chief Financial Officer

John Perino

Vice President Investor Relations

Jonathan Schlemmer

Chief Operating Officer

Safe Harbor Statement

This presentation contains “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent our management’s judgment regarding future events. In many cases, you can identify forward-looking statements by terminology such as “may,” “will,” “plan,” “expect,” “anticipate,” “estimate,” “believe,” or “continue” or the negative of these terms or other similar words. Actual results and events could differ materially and adversely from those contained in the forward-looking statements due to a number of factors, including: uncertainties regarding our ability to execute our restructuring plans within expected costs and timing; actions taken by

• ur competitors and our ability to effectively compete in the increasingly competitive global electric motor, power

generation and mechanical motion control industries; our ability to develop new products based on technological innovation and the marketplace acceptance of new and existing products; fluctuations in commodity prices and raw material costs; our dependence on significant customers; issues and costs arising from the integration of acquired companies and businesses, including the timing and impact of purchase accounting adjustments; unanticipated costs

• r expenses we may incur related to product warranty issues; our dependence on key suppliers and the potential

effects of supply disruptions; infringement of our intellectual property by third parties, challenges to our intellectual property, and claims of infringement by us of third party technologies; increases in our overall debt levels as a result of acquisitions or otherwise and our ability to repay principal and interest on our outstanding debt; product liability and

• ther litigation, or the failure of our products to perform as anticipated, particularly in high volume applications;

economic changes in global markets where we do business, such as reduced demand for the products we sell, currency exchange rates, inflation rates, interest rates, recession, foreign government policies and other external factors that we cannot control; unanticipated liabilities of acquired businesses; cyclical downturns affecting the global market for capital goods; difficulties associated with managing foreign operations; and other risks and uncertainties including but not limited to those described in Item 1A-Risk Factors of the Company’s Annual Report on Form 10-K filed on February 26, 2014 and from time to time in our reports filed with U.S. Securities and Exchange Commission. All subsequent written and oral forward-looking statements attributable to us or to persons acting on our behalf are expressly qualified in their entirety by the applicable cautionary statements. The forward-looking statements included in this presentation are made only as of their respective dates, and we undertake no obligation to update these statements to reflect subsequent events or circumstances. p 2

Non-GAAP Financial Measures

p 3

We prepare financial statements in accordance with accounting principles generally accepted in the United States (GAAP). We also disclose adjusted diluted earnings per share (EPS), adjusted gross profit, adjusted gross profit as a percentage of net sales, adjusted income from operations, organic growth, free cash flow and free cash flow as a percentage of net income attributable to Regal Beloit Corporation (collectively, “non-GAAP financial measures”). We use these measures in our internal performance reporting and for reports to the Board of Directors. We also periodically disclose certain of these measures in

• ur quarterly earnings releases, on investor conference calls, and in investor

presentations and similar events. We believe that these non-GAAP financial measures are useful measures for providing investors with additional insight into

• ur operating performance. This additional information is not meant to be

considered in isolation or as a substitute for our results of operations prepared and presented in accordance with GAAP. Free cash flow is defined as net cash provided by operating activities less additions to property, plant and equipment adjusted for grants received for capital expenditures.

Overview

• Getting to Know Regal
• Best in Class Industrial Performance
• Growth Catalysts
• Financial Performance

Building a Premier Global Enterprise

p 4

Overview

• Getting to Know Regal
• Best in Class Industrial Performance
• Growth Catalysts
• Financial Performance

Building a Premier Global Enterprise

p 5

39% 27% 34%

Company Overview

Revenues $3.1B Management Experienced, Credible, Stable 2011, 2012, 2013 Free Cash Flow Exceeds

• Adj. Net Income

Founded 1955 Beloit, WI Dividends Raised 9 out of last 10 years Revenue Growth 7-Year CAGR 9.7%

p 6

Sales by Product/Platform Percentage of Sales Sales by Geography Sales by Channel

Asia Europe Canada USA OEM Dist. End User Residential Industrial Commercial p 6 RoW Mexico HVAC Other Resi C&I Motors Pwr Gen Mech- anical Other

Necessary and Innovative Products

Electric Motors

p 7

Mechanical Electronic Controls Power Generation

Diverse Applications

p 8

Global Foot Print

p 9

Able to Meet Customer Demands Anywhere In the World Aligning with Faster Growing Economies

Overview

• Getting to Know Regal
• Best in Class Industrial Performance
• Growth Catalysts
• Financial Performance

Building a Premier Global Enterprise

p 10

(50%) (30%) (10%) 10% 30% 50% 70% 90% 110% 130% 150% 12/31/08 12/31/09 12/31/10 12/31/11 12/30/12 12/30/13

104.6% S&P 500

Total Shareholder Returns

Five Year History

Total 5-YR Cumulative Shareholder Return

p 11

106.3% Regal Beloit 88.9% DJIA

Source: Capital IQ

Regal Compass Operating System

Near Term Income Statement

• Quality
• Cost
• Delivery
• Cap Ex
• Cash Cycle
• New Products

Long Term Growth

Lean Six Sigma Tools Leadership Tools

• Talent Management
• Long Range Plans
• Compliance/Safety
• Risk Management
• Customer Care
• Integrations

p 12

Overview

• Getting to Know Regal
• Best in Class Industrial Performance
• Growth Catalysts
• Financial Performance

Building a Premier Global Enterprise

p 13

$0 $100 $200 $300 $400 $500 $600 $700 2005 2006 2007 2008 2009 2010 2011 2012 2013

Energy Efficiency Mega-Trend

p 14

Energy Efficient Product Sales*

Regional SEER Update US Small Motor Standard Update

• APGA/HARDI & DOE settled
• Effective 1/1/15, 13 SEER in North, 14

SEER in South, 14 SEER and 12 EER in SW

• 18 Mo. Sell Through Provision for

Inventory Mfg. Prior to 12/31/14

• Effective March 9, 2015
• Applies to Commercial and Industrial

Motors Between .25 HP - 3 HP

• 2 year Allowance for Agency Approved

designs (3/9/17)

* Management Estimate

22 50 60 71 10 20 30 40 50 60 70 2008 2011 2012 2013

New Products

p 15

New Product Introductions

HERA-MAX Gear Motor DEC Star Variable Speed Pool Motor

Develop New Products with Focus on Energy Efficiency

SyMAX-I™

Successful Acquirer and Integrator

• Rigorous Evaluation and

Integration Process Drives Return On Investment

• Aligning Footprint with

Faster Growing End Markets and Economies

• Acquisition Pipeline

Continues to Be Active

2010 2011

HARGIL DYNAMICS

PTY. LTD.

Consistent and Successful Acquirer

p 16

2012 2013 2014

Successful Acquirer and Integrator

Strategic Goals

• Technology and Energy

Efficiency

• Expand Geographic Footprint
• Margin Improvement

Acquisitions Driving Growth

p 17

Financial Goals

• EPS Accretive in First Year
• Cash Flow Positive in First

Year

• Clear Path to Exceed ROIC

Hurdle Rate within Three Years

Evaluating Acquisition Opportunities that Meet our Strategic and Financial Requirements

Simplification Initiative

Reduction Targets ERPs Factories Warehouses Design Platforms Entities Suppliers Brands 2011 3 2 2 10 50 2 Next 3 Years ~ 4 ~ 5 ~ 7 ~ 6 ~ 20 ~ 400 ~ 10

Improve Margins, Easier to do Business

2012 3 4 6 2 20 120 2

p 18

2013 2 1 3 2 19 100 1

Design Platform Simplification

Platform Description 48 Frame Fractional HVAC Motors 3.3” Fractional HVACR Motors and Blowers Worm Gear Mechanical IEC (IE3) Industrial Motors for Asia and Europe 48/56 Frame Fractional C&I Motors

p 19

> Springfield, Acuna and Australia Programs

– Progressing Forward, Customer Demand Creating Challenges – Expect to See Benefits in 4Q and 2015

> Announced Closure of Two Kentucky Manufacturing Facilities

– Moves Motor Parts Production Closer to Motor Assembly Operations – Expect to be Completed by end of 3Q 2015 – ~$7M Restructuring Expense, ~$5M Annual Savings

$2.7

$4.2 $3.6 $3.7 $2.9 $4.3 4Q13 A 1Q14 A 2Q14 A 3Q14E 4Q14E 1H15E

Footprint Simplification

Total Simplification Restructuring Expense ($M)

p 20

Investing in Emerging Markets

Hermetic Motors - Taicang Generators - Shanghai

p 21

Visual Management Lean Production

1955 1957 1959 1961 1963 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013

Growth Catalyst Summary

• Energy Efficiency Trends
• Introducing New Products
• Consistent and Successful Acquirer
• Simplification Initiative
• Investing in Emerging Markets

p 22

Overview

• Getting to Know Regal
• Best in Class Industrial Performance
• Growth Catalysts
• Financial Performance

Building a Premier Global Enterprise

p 23

• $0.25

$0.25 $0.75 $1.25 $1.75 $2.25 $2.75 $3.25 $3.75 $4.25 $4.75 $0 $500 $1,000 $1,500 $2,000 $2,500 $3,000 $3,500

2006 2007 2008 2009 2010 2011* 2012* 2013*

Sales and EPS Growth

*EPS Sales

$ Thousands p 24

9.7 % Sales CAGR (2006-2013)

*2011, 2012 and 2013 are adjusted EPS. See Non-GAAP reconciliation in Appendix

Strong Track Record of Growth

2005 2006 2007 2008 2009 2010 2011 2012 2004

0% 10% 20% 30% 40% 50% 60%

Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2Q3Q4Q1Q2

Total Debt / Total Capital

Balance Sheet Strength

p 25

Current Debt/Cap at 26% Debt / LTM EBITDA at 1.8x

Strong Free Cash Flow to Reduce Debt

2013 2014

0% 50% 100% 150% 200% 250% 300% $0 $50 $100 $150 $200 $250 $300 $350 $400 2006 2007 2008 2009 2010 2011 2012 2013

Free Cash Flow Capex FCF% of Net Income

.

Consistent Cash Flow and Growth Investment

Cash Div $16.6 $18.1 $19.4 $21.6 $25.1 $27.6 $30.8 $35.1 ($M)

_____________________ Note: Free Cash Flow, see Non-GAAP reconciliation in Appendix.

p 26

April 2014 Increased Dividend 10%

Capital Allocation

p 27

• Strong Balance Sheet
• Consistent Free Cash Flow
• Acquisition Strategy
• Return Capital to Shareholders

– Dividends – Share Repurchases

Investment Thesis

• Global Leader in Key Markets

– Innovative Product Leadership – Operating System Driving Results

• Growth Drivers

– New Products with Focus on Energy Efficiency – Well Positioned in Emerging Markets – Successful and Disciplined Acquirer

• Executing on Operating Profit Improvement Plan

– EPC Synergies – Simplification Initiative

• Consistent Financial Performance

– Seven Year Sales Growth ≈ 9% – Consistently Strong Free Cash Flow – Strong Balance Sheet

p 28

Thank You

p 29

Mark J Gliebe President Chief Executive Officer Chuck Hinrichs Vice President Chief Financial Officer John Perino Vice President Investor Relations Jonathan Schlemmer Chief Operating Officer

Appendix Non-GAAP Reconciliations

First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year 2013 GAAP Diluted Earnings (Loss) Per Share $ 1.09 $ 1.13 $ 1.16 $ (0.74) $ 2.64 Asset Impairment and Other Net of Taxes — — — 1.65 1.65 Purchase Accounting and Transaction Costs — — — 0.02 0.02 Restructuring Costs 0.01 0.02 0.02 0.04 0.09 Prior Year Tax Benefit (0.02) (0.02) — — (0.04) 2013 Adjusted Diluted Earnings Per Share $ 1.08 $ 1.13 $ 1.18 0.97 $ 4.36 First Quarter Second Quarter Third Quarter Fourth Quarter Fiscal Year 2012 GAAP Diluted Earnings Per Share $ 1.16 $ 1.49 $ 1.29 $ 0.70 $ 4.64 Purchase Accounting Costs .01 — — — 0.01 Restructuring Costs — 0.01 0.08 0.06 0.15 Gain on Disposal of Real Estate (0.02) — — — (0.02) Prior Year Tax Benefit — — (0.05) — (0.05) 2012 Adjusted Diluted Earnings Per Share $ 1.15 $ 1.50 $ 1.32 0.76 $ 4.73

ADJUSTED DILUTED EARNINGS PER SHARE

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Appendix Non-GAAP Reconciliations

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EBITDA Reconciliation Dollars in Millions 3Q 2013 4Q 2013 1Q 2014 2Q 2014 LTM Net Income $52.6 ($33.2) $43.8 $56.2 $119.4 Asset Impairment and Other, Net

• 81.0
• 1.0

82.0 Plus: Minority Interest 1.9 0.4 1.2 1.9 5.4 Plus: Taxes 15.0

• 3.7

16.0 21.0 48.3 Plus: Interest Expense 10.6 10.5 10.4 10.3 41.8 Less: Interest Income

• 1.3
• 1.8
• 1.7
• 1.7
• 6.5

Plus: Depreciation 20.8 22.3 21.5 23.0 87.6 Plus: Amortization 10.9 11.1 11.3 12.2 45.5 Adjusted EBITDA $110.5 $86.6 $102.5 $123.9 $423.5

p 32

Free Cash Flow Reconciliation

Appendix Non-GAAP Reconciliations

(Dollars in Millions) 2006 2007 2008 2009 2010 2011 2012 2013 Cash Flow from Operation 93.5 $ 200.6 $ 154.2 $ 314.9 $ 175.4 $ 265.3 $ 351.7 $ 305.0 Capital Expenditures (52.5) (36.6) (52.2) (33.6) (45.0) (57.6) (91.0) (82.7) Grants Received for Capital Expenditures

• 8.7

1.6 Free Cash Flow 41.0 $ 164.0 $ 102.0 $ 281.3 $ 130.4 $ 207.7 $ 269.4 $ 223.9